Dancing Around The Trend Line

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The battle of earnings vs. economic data continued yesterday as the markets declined slightly but essentially went nowhere.

The Fed’s beige book simply repeated what Fed chairman Bernanke already elaborated on over the past couple of weeks that the economy has lost some steam with not much hiring going on in addition to continued sluggish real estate markets.

As far as upward market momentum is concerned, we have stalled. The S&P; 500 has been dancing around its widely watched 200-day moving average (currently at 1,114) but has not made any meaningful advances above it.

Technically speaking, we have been range bound, and a positive piece of economic news is needed to push us onto higher ground. In the absence of such support the path of least resistance will be to the downside.

The question is wide open at this point as to whether the 1,114 level will continue to serve as resistance, and the top of the rally, or become a new consolidation point to function as a springboard for more gains.

Because if this uncertainty, I have not yet removed the short component of our hedge nor have I added any new positions based on the recent international buy signal. Avoiding a potential whipsaw is important during this sideways period, and I’d rather be a little late to the party than too early.

Maybe the reports on weekly jobless claims and U.S. economic growth due out later this week will give some clue as to which direction the major trend will take.

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